Pursuit of Prosperity Amid Changes: Evolution of Trade Rules and Global Industry Chains

Trade rules refer to a series of agreements by which countries must abide in international trade. Countries around the world are recognizing the need to enhance their security as their industry chains become globalized. This is occurring amid widespread change spurred by geopolitics. We believe trade rules may gradually evolve from being dominated by the World Trade Organization (WTO) to a new stage of parallel development of the WTO and preferential trade agreements (PTAs). Looking ahead, we expect the WTO and PTAs to put pressure on each other and evolve simultaneously to reshape the global trade landscape. We think the WTO will continue to play the basic function of adjudication and facilitate basic consensus in a wide range of fields, while PTAs will play a more obvious leading role in rule-making in emerging fields. This should drive in-depth integration of regional economies and trade. The evolution of trade rules could increase uncertainty in global industry chains in the near term and affect changes in the global industry chains in the medium and long term. First, the transition from offshore outsourcing to nearshore and friendly-shore outsourcing may become increasingly prominent along the industry chains. Second, as the influence of major countries on the evolution of trade rules increases, regionalization of industry chains surrounding major countries should become more prevalent. Lastly, some emerging industries may see opportunities for further opening-up under new trade rules. We expect labor-intensive industries to be relatively less affected by the evolution of trade rules, while capital- and technology-intensive industries such as machinery and electronics industries may be more severely affected as the global development of their industry chains is more susceptible to far-reaching PTAs. Currently, we think China’s trade rule system is yet to fully support the efficient and safe development of industry chains. First, China’s influence is comparatively modest in the global multilateral trade system, so it’s hard for the country to provide strong impetus for WTO reform. This means the development of China’s industry chains is subject to external pressure. Second, some regional trade agreements China initiated or participated in are still in the preliminary stage of development in terms of depth and breadth, and could play a limited role in facilitating in-depth industry chain integration in the short term. Third, China’s institutional arrangements for opening-up still have room for refinement, and the country’s ability to align itself to high-standard international economic and trade rules remains limited. We believe this may hinder its further integration into global industry chains to some extent. Looking ahead, we think China could adapt to the evolution of trade rules and facilitate complementary and common development of multilateral trade, regional trade, and domestic market rules. Under the multilateral system, China can actively participate in the reform of the WTO, seek common ground while reserving differences, build consensus, and drive a multilateral cooperation platform. In regional markets, China could adopt a multi-level development strategy and upgrade regional trade agreements. In the domestic market, efforts could be made to advance a high-standard institutional opening-up with pilot free trade zones acting as test fields.